The residential real estate market is strong. Sales are better than last year and continue to increase. However, asking prices are increasing at a faster rate than the economy. The question is, why?

First, there is an abundance of developer-built speculative homes where the developer is looking to make a huge profit. Next, people with no reason to move are being convinced to sell by agents giving them unrealistic prices.

Currently, there are quite a few homes priced at $100M or more, including one listed at $350M. What is the likelihood that when only one house in Los Angeles has legitimately changed hands at $100M that there will be an influx of more of these $100M buyers? Understand that if a buyer can spend $100M on a house (and this is likely only one of several houses they own) then they must not only want to reside in Los Angeles and like one of these houses enough to purchase it, but they also must have a net worth of $500M or more. It seems a bit farfetched to me.

When you enter into the rarified air of the ultra-high-net-worth, the buyer has a pretty good idea how they would like to live. Making his or her vision match with a house someone else has “speculated” becomes a bit problematic.

I am very high on the future of Los Angeles and the LA real estate market, but so many houses in this price range will lead to many languishing properties until they revert to the prices that equate their real worth. Remember, the buyer determines that worth. Price them right and sell them quickly.